The general transcription factor, TFIID, consists of the TATA binding protein (TBP) associated with a series of TBP-associated factors (TAFs) that together participate in the assembly of the transcription preinitiation complex. One of the TAFs, has acetyl transferase (AT) activity that is necessary for transcription of MHC class I genes: inhibition of the AT activity represses transcription. To identify potential cellular factors that might regulate the AT activity of TAFI, a yeast two-hybrid library was screened with a TAFI segment (848-1279 aa) that spanned part of its AT domain and its RAP74 binding domain. The TFIID component, TAF7, was isolated and found to inhibit TAF1 AT activity. Importantly, addition of recombinant TAF7 to in vitro transcription assays inhibits TAFI-dependent MHC class I transcription. Thus, TAF7 is capable of regulating TAFI function by modulating its AT activity. To investigate the role in transcription of TAF7 repression of TAF1 AT activity, we have developed an in vitro preinitiation complex (PIC) assembly assay, using the MHC class I promoter as the template. The assembly of the PIC is nucleated by the general transcription factor (GTF), TFIID. In this assay, transcription from the class I PIC initiates at the sites observed in vivo, depends on all 4 dNTP's and is inhibited by inhibitors of transcription. Our study has focused on the role of the TFIID component, TAF7, in regulating the transition from PIC assembly to initiation and elongation. We found that TAF7 remains associated with TFIID during the formation of the PIC, but is released upon transcription initiation and elongation. The release of TAF7 results from autophosphorylation of TAF1. Surprisingly, concomitant with release from TAF1, TAF7 binds to the transcription elongation factor, P-TEFb. Binding of TAF7 to P-TEFb is accompanied by the phosphorylation of both TAF7 and CDK9, the kinase subunit of P-TEFb. Importantly, TAF7 remains associated with P-TEFb and the transcription elongation complex during transcription elongation. Based on these findings, we propose a model in which TAF7 functions as a check-point regulator: inhibiting transcription initiation until PIC assembly is complete and then activating elongation.